One advantage of my many career stops, and the multitude of different industries I have been associated with is the wide range of experience with different sales organization structures.
When you are putting together a business, the sales channel is one of the crucial early decisions to make, and your early choices can have lasting ramifications on your long term business.
While it is not strictly a product management responsibility to define and implement a sales strategy, you likely do have a seat at the table during the discussions, and with it, some influence. Regardless of the structure, it will affect much of your strategy and roadmap. Particularly your pricing and cost structures need to be aligned with the sales structure you will work with.
Most of my experience is with B2B sales, and mostly of hardware, or hardware/software combinations. So keep that in mind when reading this. If you are delivering a SaaS or strictly cloud solution, this is less useful. Your mileage may vary.
While it is often desirable to sell direct (also known as the Direct Sales Channel) to customers in the market, that is nearly impossible to achieve as you grow. Thus, early in a company’s existence when growth begins taking off, there is pressure to increase your “feet on the street” selling, while not increasing your headcount. This can be caused by high growth, and more leads than can be handled by your initial sales team, or perhaps you want to expand geographically into an international market where you can’t support the sales process from your home country.
Regardless of the reason, at that point you usually bring into the fold “representatives” or agents to help with the sales. These are usually specialized sales teams that handle a catalog of products, and are able to sell yours as well as other manufacturer’s products to customers or segments that they specialize in.
Many successful companies never go beyond a direct/rep sales structure, and can comfortably manage this hybrid organization for a long time. However, if your volumes go way up, or if your products face cultural hurdles in some geographies, it often is wise to consider a distribution strategy.
Some info on the sales structures below.
There are several degrees of this from the simplest “lead finder” someone who identifies a prospect and submits that to the company to follow up and close, to a full on distributor, where the local marketing, promotion, and ownership of the sales process belongs to the agency under contract.
These are people who are your employees. They are on your payroll, draw a salary, and you have complete control over. They sell your products, and nothing else.
In many ways, they are the ideal sales team to have, as they can be highly trained in your products and
Lead finders typically are paid a flat rate for each lead handed over, and at that point are no longer in the loop. This requires that your company has a strong inside sales or sales organization that can take that lead and close the deal. They are pretty easy to add, and you can easily have several that overlap territories.
As they usually have strengths in customer segments, it is often wise to “shotgun” these and have over coverage. They only get paid when the had you a hot lead, and usually the price per lead is modest.
The downside is that your sales team needs the bandwidth to run these leads to ground. Often, success with this model will drive you to justify increasing your direct force.
Yet, they are usually a stepping stone to a more concrete organization structure …
Agents, Representatives, Manufacturer’s Representatives
Agents or representatives (also known as Manufacturer Reps or MR’s) behave more like a sales person. They are responsible for the qualification of the lead, the management of the sales process, and closing the order. They are typically paid a percentage of the final closing price that varies by the sophistication of their effort, and the industry. Commonly 10% – 15% is the commission that is paid to the rep. Usually though, they do not do any market development, or lead finding. Mostly they are passed leads from the company to run with.
Here you need to be a bit more cautious than you are with simple lead finders. Reps are often very territorial, and protective of their turf. You will need to negotiate carefully to avoid confrontation if geographical territories overlap (I have seen some really nasty fights over this).
As reps or agents effectively increase your sales footprint without the overhead associated with hiring staff. (Salary, benefits, etc.) It is my experience that you often have a direct sales person per region that “manages” the rep organizations. They provide that first level of sales support, responding to bids and tenders, the first tier of discount authority, and managing the funnel for the factory forecast.
Many (if not most) organizations find that this blend of direct sales and MR’s a good balance, particularly if the product requires a technical touch during the sales cycle.
However, if your product is high volume, or has minimal configurable options, it is likely that your ultimate sales strategy is a distributor lead effort
This is also commonly called “mass-market resellers” or MMRs. They can be as simple as a catalog like Edmund Optical, or as complex as a complete sourcing solution like Ingram Micro. The key attributes are often that they have a wide selection of products from many vendors, they do their own market development (lead generation, advertising, promotion, etc), and they typically get a significant discount off the list price (25% – 50%) in exchange for their efforts.
Often though, for early stage companies, it is difficult to justify this distribution model, as your growth phase usually requires focused marketing and brand awareness building to gain traction. Unless you are a large seller, a bit distributor like Element 14 isn’t going to be able to put that attention on your products.
One Common Exception – Enterprise Software
One strategy that is particularly suitable for enterprise software is the engagement of channel partners or VARs. These are often specialized companies that work with your team, and the end customer’s team to design, implement, and support a complex product delivery. They often write custom interfaces built around your API’s, and glue them into the customer’s architecture.
If your product isn’t plug and play, requiring some level of customization for a successful implementation, building a strong ecosystem of channel partners is crucial.
Furthermore, you will want more than one, as integration is often industry specific. What is required for a financial institution often is wildly different from a manufacturing concern. Two different channel partners, both focused on the end customer’s industry provide instant credibility, and gravitas to your image.
This is worthy of a greater expansion in a future post.
It is unusual for product management to choose the sales strategy. Usually the executive team and sales leadership
have that responsibility. Yet, as an organization evolves, and matures, it is not uncommon for the channel strategy to shift. Here is where product management can weigh in, albeit with a less than influential voice, as the structure has implications for the product management and product marketing functions.
Regardless of your structure, it is your job in product to deliver both products, and support to the sales process. Future posts will delve into specific product management and product marketing deliverables to support sales.
- As an organization matures, the sales channel strategy is likely to evolve
- Sales channel structure is important for both product management and product marketing to understand and properly support
- As you change the structure of the sales channel, include, as a junior partner, the product team, as their cooperation is essential for success